Line chart showing the relative valuation of Developed Market ex-U.S. (DM) equities versus U.S. equities from March 2006 to December 2023. The plotted line is the ratio of the price to earnings ratio (P/E) of the MSCI EAFE Index divided by the P/E of the S&P 500 Index. A lower value of the ratio means that DM equities are relatively cheap and vice versa. After declining for much of the past 15 years, the current value is at the lowest the ratio has been over that time.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from March 1, 2006 to December 31, 2023. The MSCI EAFE Index capture large- and mid-cap representation across developed market countries (excluding the U.S. and Canada) around the world. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. Index returns do not represent investment performance or the results of actual trading. Index returns represent general market results, assume the reinvestment of dividends and other distributions, and do not reflect deduction for fees, expenses or taxes applicable to an actual investment. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities. Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
Key Takeaways
- Developed Market relative valuations have reached historically cheap levels.
- While valuations are typically poor timing vehicles, we believe that the fundamental backdrop has improved for the region and that we have passed peak market pessimism.